The Prime Minister told his Israeli counterpart, who was in London for the funeral of Baroness Thatcher, that improving the economic and security situation in the occupied territories was "essential" in helping to revive the process.

Foreign Secretary William Hague warned earlier this year that hopes of a two-state solution were "slipping away".

A Downing Street spokeswoman said: "The Prime Minister emphasised the importance of efforts to restart the Israeli-Palestinian peace process for the future of Israel, the Palestinians and the region.

"He said that it was essential to create the conditions for successful negotiations by improving the economic and security situation on the ground in the occupied territories, as well as ensuring Israel's security from rocket and other attacks."

The leaders also agreed to work closely to combat the crisis in Syria and the on-going threat from Iran over its nuclear programme.

The spokeswoman added: "They also agreed on the need to maintain real and credible pressure on Iran until it comes to the table in good faith to deal with concerns over the threat its nuclear programme poses to people across the region."